Okay, I'll admit to being a little naïve on big finance but holding a debt like this is still going to cost them 30 million a year. If it's "only" 7% of revenue, surely they'd pay the debts off.
Seems more likely all that revenue is sunk into existing costs and they need the loan to remain liquid.
There are large debt rounds in businesses that have cash flow, assets and huge operating budgets.
The nature of VC/early-stage is such that it doesn't fit the risk profile for debt.
Companies have no assets to back the debt with, often no consistent revenue etc..
With the insane valuations that companies are getting these days it seems to me that debt would even be more afraid.
Like Clubhouse: 15M users, no revenue, flakey product, no obvious kind of revenue model, $1B valuation. Are you going to loan them $50M at 5% interest? Consider the risk on that.
So if your startup sells some funky kind of new wind turbine, and you do the deployments yourself, you might be able to raise debt to pay for the the installs themselves, because you can do the math on that out for a few years.
So you could raise debt to finance your sales in a way like that.
But it's about a risk profile, and how far out you can predict stable cash flows.
Many big financing rounds include debt. When you see that someone raised $500M, perhaps $100M is debt. It levers the equity investment providing an enhanced return, while reducing dilution for existing shareholders.
That equity ends up being really expensive when unicorns ipo. Unicorns generally don’t raise non-convertible-debt because they simply can’t find lenders willing to take single digit interest rates coupled with even a small chance of failure.
As I understand it they have already borrowed around $1B, and now because of the lower interest rate, they are able to secure a bigger loan that they'll use to pay back the original and then still have a bucket of cash, at a lower interest.
I don't know about the US, but here in Denmark it has been a common "trick" in mortgage financing as the interest rate dropped over the last couple of decades.
But as with all taking on debt to pay off debt, it's like wetting yourself.
> But as with all taking on debt to pay off debt, it's like wetting yourself.
Taking on debt at a lower interest rate to pay off debt at a higher interest rate is just common sense.
Taking on additional debt just to have a bucket of cash is what can potentially get you in trouble if there is no plan or resolve to use it productively.
The best part is what happens when they cannot refinance anymore. There is a wall in front of the car, but speeding is fun, so why not accelerate a bit more.
Having debt doesn’t make a company underwater. If you can use that debt to generate more revenue than it cost to service the debt it makes absolute financial sense to do so.
Basically every major corporation in the world right now has large debt in the form of lines of credit. It’s too cheap not to right now. Especially for a company that doesn’t have easy access to institutional investors.
>ByteDance had been exploring a public listing in the beginning of 2021, sources have told Reuters, but in April the company said it had no imminent plans for an initial public offering.
Has ByteDance been put on the waiting list by the CCP or is it cold feet from looking at Ant Group ?
That's what they want based on some artificially made numbers saying "hey look our growth is exponential it will never stop come play with us". Now the banks will have to decide if they are at risk of being the ones with the bullet in the chamber of this russian roulette debt game.
Readit News
A 3B refinancing deal - done at a time of very favorable interest rates - is really a non-story.
Seems more likely all that revenue is sunk into existing costs and they need the loan to remain liquid.
Are they just not publicised as much as equity, or could even the largest unprofitable unicorn not raise and service a $5 billion debt?
The nature of VC/early-stage is such that it doesn't fit the risk profile for debt.
Companies have no assets to back the debt with, often no consistent revenue etc..
With the insane valuations that companies are getting these days it seems to me that debt would even be more afraid.
Like Clubhouse: 15M users, no revenue, flakey product, no obvious kind of revenue model, $1B valuation. Are you going to loan them $50M at 5% interest? Consider the risk on that.
So if your startup sells some funky kind of new wind turbine, and you do the deployments yourself, you might be able to raise debt to pay for the the installs themselves, because you can do the math on that out for a few years.
So you could raise debt to finance your sales in a way like that.
But it's about a risk profile, and how far out you can predict stable cash flows.
So I take that to mean that this is not a new loan of $3B, they are already that far underwater, and are refinancing for better terms.
I don't know about the US, but here in Denmark it has been a common "trick" in mortgage financing as the interest rate dropped over the last couple of decades.
But as with all taking on debt to pay off debt, it's like wetting yourself.
Taking on debt at a lower interest rate to pay off debt at a higher interest rate is just common sense.
Taking on additional debt just to have a bucket of cash is what can potentially get you in trouble if there is no plan or resolve to use it productively.
??
Feels like something didn't translate well from Danish to English in that saying:)
Basically every major corporation in the world right now has large debt in the form of lines of credit. It’s too cheap not to right now. Especially for a company that doesn’t have easy access to institutional investors.
Has ByteDance been put on the waiting list by the CCP or is it cold feet from looking at Ant Group ?
https://ghostarchive.org/archive/Eo0an
Given Xi's family background, combined with his provincial lack of nuance, this isn't remotely surprising.